Taxing Question: How to Handle Low-Income Properties

LOWNDES COUNTY, Miss. (WCBI) — It’s a battle among developers, taxpayers and affordable housing advocates across the state. And it may take the Legislature or the courts to solve it.

Lowndes County supervisors today denied a request from developers of federal Section 42 low-income homes and apartments to reduce the taxes imposed this year by Tax Assessor Greg Andrews.

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In previous years, the county has taxed based on the reduced rent tenants pay, called the income approach. This year, to make the system fair to all rental properties, Andrews based taxes on market values — the cost approach — and the federal tax credits sold to finance the projects.

Developers say they’ll lose money, because they have thin annual profit margins and in many cases taxes would double or triple. They would have to eat those costs because they can’t raise rents under federal guidelines.

But counties say it’s costing taxpayers because the tax credits thee developers sell to finance the projects have some value that aren’t being accounted for. At least $400,000 in tax revenues is at stake on 14 properties in Lowndes County alone.

The Section 42 program was developed under former President Ronald Reagan as a way to get the federal government out of paying direct rents to low-income people.

In the end, supervisors agreed to support Andrews’ revised method and to let the developers take the issue up in court. At least two lawsuits on the issue already are pending across the state. If the county loses, supervisors say they can refund the taxes but if they win, they can’t go back and bill for previous years.

Columbus Republican State Rep. Jeff Smith, a member of the tax-writing House Ways and Means Committee, has told Andrews and others that it may be necessary for his committee to sit down with tax assessors and Section 42 developers to work out a system that is equitable across the state.

One possibility is something similar to the fee-in-lieu tax plan used to attract large new industries. In cases of a $100 million or more investment, companies only pay taxes on about a third of their value. In the case of Section 42 developments, a system could be developed on a sliding scale where taxes are assessed at a reduced value, depending on the size of the development.

“We don’t want to risk their (developers) investment, but we don’t want to hurt taxpayers either,” Andrews said as he and county appraiser Jim Mann explained the quandary to supervisors. “If the Legislature can address the issue, we could come up with something universal statewide.”